The financial sector isn't the powerhouse of the UK economy. It's more like a Wendy house

HMRC figures show a drastic reduction in Corporation Tax contributions since the financial crash – on average just £3.3billion a year, even when the paltry Bank Levy is included. To put this in context, the finance sector shelled out £14 billion in bonuse

Five years ago today, following a frantic weekend of negotiations, during which Alistair Darling later admitted cash machines were within hours of being switched off, the Government announced that British banks would be part-nationalised to stave off collapse. We bought an 82% stake in RBS and 40% in Lloyds/HBOS at a combined cost of £37 billion. 

It was part of a wider bailout package which cost £132.89 billion of public money – the equivalent of £2,000 from each man, woman and child in the UK. Former Governor of the Bank of England Mervyn King quipped a year later: "To paraphrase a great wartime leader, never in the field of financial endeavour has so much money been owed by so few to so many.”

Half a decade later and the situation has changed little. According to the most up-to-date figures from the National Audit Office, £118.86 billion (or 89 per cent) of the original bailout is still outstanding. The interest payments alone cost the public purse £5 billion a year. Whilst some of the costs are recouped through the Government charging banks interest and fees, the NAO estimates it has still amounted to “a transfer of at least £5 billion from taxpayers to the financial sector” since the crisis.

There are others reasons the many are still propping up the few. Take for instance the 'too-big-to-fail' subsidy, whereby banks can borrow money cheaply because creditors know the Government (read: taxpayer) will bail them out if things go wrong. It's worth a fortune - £235 billion to Britain's four biggest banks between 2008-2011, according to research by the New Economics Foundation.

Or look at financial service's incongruous exemption from VAT. It's understandable that some items are VAT-free, for example: children's clothes, public transport, medical and funeral costs; but why are we exempting the services of a derivatives trader? According to HMRC itself, this anomaly costs us another £5bn a year. The International Monetary Fund has warned this special treatment of the banking sector means it is under-taxed and has allowed it to grow “too large”. 

Banks have also become adept at gobbling up public money intended for the real economy. This not only artificially inflates their profit and pay, but acts as a tourniquet on growth. Despite having drawn down £17.6bn since the Funding for Lending Scheme began just over a year ago, banks' lending to business contracted by £2.3bn.  

The cumulative effect is that banks live in a welfare dependent bubble, cushioned from feeling the effects of the crisis they caused. Financial sector growth has far outstripped the rest of the economy since the crisis: in 2012 for example, if you take out the fines and the one-off costs of adjusting to regulatory changes, the profits of the five biggest banks' rose 45% to £31.5 billion. The economy virtually flat-lined during the same period.

Yet whilst the financial sector likes to think of itself as the powerhouse of the UK economy, in terms of the tax it pays, it's more of a Wendy house. HMRC figures show a drastic reduction in Corporation Tax contributions since the financial crash – on average just £3.3billion a year, even when the paltry Bank Levy is included. To put this in context, the finance sector shelled out £14 billion in bonuses to top staff last year alone.

Meanwhile, the public have paid in service cuts, job losses and tax rises. Government spending will be cut by 9.1%, £141bn in real terms, during the course of this Parliament, chronically impacting on the poorest who rely on services most. Whilst the top rate of tax was cut, giving millionaires a tax break, the VAT increase to 20% has been shown to hit the poorest 10 per cent of the population more than twice as hard as the richest 10 per cent.

This stark injustice has prompted other countries to take action. It is the explicit reason why Germany, France, Italy, Spain and seven other European countries are implementing the Financial Transaction Tax of between 0.1% - 0.01% on stocks, bonds and derivatives that will raise up to £30 billion. It is the only policy to have emerged post-crisis that will ensure those responsible pay to clean up the mess they caused.

Unfortunately, the UK Government has not only refused to join in, but has taken the proposal to the European Court of Justice. It's a worrying indictment of their priorities, compounded two weeks ago when they launched another legal challenge, this time against the EU banker bonus cap. This was followed by news that the Government is scrapping the 1 per cent pay rise due to NHS staff in April. As an example of misplaced priorities it is difficult to beat.

Unless of course you look at ministers’ treatment of the poorest – the bedroom tax, benefit cap and punitive sanctions for those who miss Job Centre appointments - these policies are all signs that the coalition is determined to end what they call ‘the something for nothing’ culture. It’s a shame they won’t apply the same logic to bankers.

A protestor from the 'Robin Hood Tax Campaign,' dressed as 'Robin Hood,' holds a fake budget box above the Houses of Parliament. Image: Getty

Simon Chouffot is a spokesperson for the Robin Hood Tax campaign and writes on the role of the financial sector in our society.

Photo: Getty
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Who will win in Stoke-on-Trent?

Labour are the favourites, but they could fall victim to a shock in the Midlands constituency.  

The resignation of Tristram Hunt as MP for Stoke-on-Central has triggered a by-election in the safe Labour seat of Stoke on Trent Central. That had Westminster speculating about the possibility of a victory for Ukip, which only intensified once Paul Nuttall, the party’s leader, was installed as the candidate.

If Nuttall’s message that the Labour Party has lost touch with its small-town and post-industrial heartlands is going to pay dividends at the ballot box, there can hardly be a better set of circumstances than this: the sitting MP has quit to take up a well-paid job in London, and although  the overwhelming majority of Labour MPs voted to block Brexit, the well-advertised divisions in that party over the vote should help Ukip.

But Labour started with a solid lead – it is always more useful to talk about percentages, not raw vote totals – of 16 points in 2015, with the two parties of the right effectively tied in second and third place. Just 33 votes separated Ukip in second from the third-placed Conservatives.

There was a possible – but narrow – path to victory for Ukip that involved swallowing up the Conservative vote, while Labour shed votes in three directions: to the Liberal Democrats, to Ukip, and to abstention.

But as I wrote at the start of the contest, Ukip were, in my view, overwritten in their chances of winning the seat. We talk a lot about Labour’s problem appealing to “aspirational” voters in Westminster, but less covered, and equally important, is Ukip’s aspiration problem.

For some people, a vote for Ukip is effectively a declaration that you live in a dump. You can have an interesting debate about whether it was particularly sympathetic of Ken Clarke to brand that party’s voters as “elderly male people who have had disappointing lives”, but that view is not just confined to pro-European Conservatives. A great number of people, in Stoke and elsewhere, who are sympathetic to Ukip’s positions on immigration, international development and the European Union also think that voting Ukip is for losers.

That always made making inroads into the Conservative vote harder than it looks. At the risk of looking very, very foolish in six days time, I found it difficult to imagine why Tory voters in Hanley would take the risk of voting Ukip. As I wrote when Nuttall announced his candidacy, the Conservatives were, in my view, a bigger threat to Labour than Ukip.

Under Theresa May, almost every move the party has made has been designed around making inroads into the Ukip vote and that part of the Labour vote that is sympathetic to Ukip. If the polls are to be believed, she’s succeeding nationally, though even on current polling, the Conservatives wouldn’t have enough to take Stoke on Trent Central.

Now Theresa May has made a visit to the constituency. Well, seeing as the government has a comfortable majority in the House of Commons, it’s not as if the Prime Minister needs to find time to visit the seat, particularly when there is another, easier battle down the road in the shape of the West Midlands mayoral election.

But one thing is certain: the Conservatives wouldn’t be sending May down if they thought that they were going to do worse than they did in 2015.

Parties can be wrong of course. The Conservatives knew that they had found a vulnerable spot in the last election as far as a Labour deal with the SNP was concerned. They thought that vulnerable spot was worth 15 to 20 seats. They gained 27 from the Liberal Democrats and a further eight from Labour.  Labour knew they would underperform public expectations and thought they’d end up with around 260 to 280 seats. They ended up with 232.

Nevertheless, Theresa May wouldn’t be coming down to Stoke if CCHQ thought that four days later, her party was going to finish fourth. And if the Conservatives don’t collapse, anyone betting on Ukip is liable to lose their shirt. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.